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German retail sales decreased for the second consecutive month in September amid weak domestic demand and private consumption.
According to a report released by the Federal Statistical Office on Friday, retail turnover in real terms decreased by an unexpected 0.5% in September from the previous month, compared to a 1.8% fall in August. Consensus forecast was for an increase of 1%. The initial estimate for August was a 1.5% decrease.
On an annual basis, retail sales plunged 3.9% in September, after falling by a revised 2.9% in August. The decline was much worse than the expected 2.2% drop. A year ago, sales rose 3%. The statistical office revised the August figure from a 2.6% fall. Retail trade in food, beverages and tobacco were down 2.3% in September from last year and non-food product sales slipped 4.9%.
In nominal terms, retail sales were down 4.8% year-on-year in September, following a 3.8% fall in August. Month-on-month, retail sales slipped 0.5%. For the January to September period, retail sales dropped by a real 2.2% from the previous year and fell 2.6% in nominal terms.
Lower inflation in the medium term and the expected increase in non-incorporated business income and interest income in the first half of 2010 as well as government transfers under the stimulus packages are expected to support private consumption, said Commerzbank analyst Simon Junker, in a note.
Consumer price inflation is yet to enter positive territory. Consumer prices remained flat in October versus a 0.3% fall in September, according to preliminary data from Destatis. Compared to October 2008, food prices slipped 2.8% to 4.3%.
However, retail sector is likely to be hit by the anticipated deterioration on the labor market in the months ahead. Therefore, no positive impetus for the economy can be expected, Junker added. The labor market would probably deteriorate considerably in the winter half year, hitting private consumption. "As was the case recently, retail will probably continue to perform worse than private consumption and thus remain on a downtrend," the analyst said.
Unemployment has been falling since July after hitting its peak in March. The jobless rate fell to 8.1% in October from 8.2% in September, the Federal Labor Agency reported yesterday. And, the number of people without jobs fell a seasonally adjusted 26,000 to 3.43 million in October. However, economists expect unemployment to continue rising as employers remain cautious fearing more adverse effects from the recession and financial crisis.
The government had injected billions of euros to shore-up the recession hit economy. In the run up to the election, Chancellor Angela Merkel implemented several measures to save jobs, which later worked to turn votes on her favor. Earlier this week, Merkel's new government of Conservatives and Free Democrats took office.
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